EUR 900.00 For Business Accounts Only

BNP PL - Entering the race - BUY - Coverage Initiation IPOPEMA

Entering the race
We initiate coverage of BNP Paribas Bank Polska (BNP PL) with a BUY
recommendation and a fair value of PLN 87.65 per share, which implies 37%
upside. We see value in the bank’s recent M&A transaction with Raiffeisen,
which should also support organic growth. We see the current valuation as
attractive: in our view it reflects the low liquidity and historical problems with
profitability and capital base, which, after last year’s share issue, now seem to
have been fully addressed. BNP PL is well-managed, offers a steep
improvement in earnings, has relatively low exposure to risk related to
FX mortgages and should start to share profits as dividends in three years’
time. This is our long-term bet, but with a decent reward compared to the risk
involved.
Strategic targets on the radar
BNP PL’s ‘Fast Forward’ strategy assumes a ROE of 10% and a C/I of around 50%
to be achieved by 2021. We believe the mix of further single-digit lending growth,
stable NIM, cost synergies from M&A and credit risk under control will eventually pay
off. We expect a ROE of 9.7% (versus 7.7% expected in 2019E) and a C/I of 46% in
2021E (versus 58% expected in 2019E).
Still some distance to catch up
Catching up with competitors is going to take some serious effort. In recent years the
biggest Polish banks have strengthened their positions, modernized their IT systems,
digitalized their operations and improved the customer experience. BNP PL has been
lagging behind in these respects and it is now time to catch up. A new system of
internet banking for retail clients will be launched soon, rebranding is almost
complete so brand recognition should continue to improve, while the simplification of
products and a recent boost in new mortgage sales should help to attract new clients.
Low valuation for low liquidity
BNP PL trades at a significant discount to other Polish banks (around 21-31% on the
P/E multiple, up to 38% on the P/BV ratio) for several reasons: low free float,
historical problems with capital and profitability, narrower analytical coverage. We
believe the discount could gradually be reduced following the delivery of strategic
parameters (namely ROE of close to 10%) and an improvement in capital ratios,
while the P/E multiple should move closer to the market average once the bank’s free
float increases (the main shareholder is obliged to increase it by 2023).